Consumer sentiment fall fuels caution call
The overall Consumer Sentiment Index (CSI) stood at 93.6 compared to 96.6 in July.
However, this is still well ahead of the 63.0 for August 2003.
The three-month moving average rose to 93.4, from 96.2 in July. The 3-month moving average stood at 63.2 in August 2003.
IIB Bank chief economist Austin Hughes said the drop in the CSI is partly a correction following the sharp 6.5 point rise in July over June.
“It may also reflect unease at surging oil prices amid some very gloomy forecasts as to likely impact of higher energy costs on the economic outlook. In this regard, the drop mirrors weaker consumer confidence data in the US, Britain and Germany last month,” he added.
Mr Hughes believes the August sentiment reading is consistent with the bank’s long held view that the emerging upswing is unlikely to be explosive.
“The prospect of more generous budgets and maturing SSIA’s may be becoming visible on the economic horizon but Irish consumers are not yet ready to celebrate the beginning of the boom.
“While the Irish economy is set on an improving trend, it is not the sort of exceptionally strong advance that would suggest the return of the boom conditions. So far, it has a case of two steps forward and one step back for sentiment and for most other Irish indicators,” he said.
Mr Hughes argues that a very generous budget may be needed to deliver the sort of ‘feel-good factor’ that would return consumer sentiment to the levels seen during the Celtic Tiger era.
Mr Hughes said the expectations index has improved in every month since July 2003, the longest rising sequence in the near eight-year history of the sentiment survey.
“Importantly, the current conditions element of the consumer sentiment survey, which has been fairly flat for most of this year, rose for a second consecutive month in August (to 103.5 from 101.0).
“This largely reflected a further improvement in the buying climate. This may owe something to aggressive discounting of seasonal ranges by retailers left with higher than expected stock levels because of disappointing summer weather,” he pointed out.
Mr Hughes argued that any increase in consumer spending must primarily be driven by borrowing with employment growth playing a secondary role.
“Indeed, higher energy costs represent a further squeeze on discretionary spending. We also see fears of higher interest rates acting as a restraining factor,” he said.
